[Ed. note: It is really exceptionally that we publish fundamental analysis. We always stay focused on price behavior, chart patterns, intermarket dynamics and investor sentiment. However, from time to time, we believe a fundamental article is worth a read, like the example below. It is written by the team at Mountain Vision, a wealth protection firm, with a sharp view on fundamental trends in markets and the monetary system. Not all ideas in this article reflect our vision, but the underlying wealth protection ideas are certainly important ones which we can definitely support.]
We’re nearing the end of a wild year: In the financial world, a number of global events have turned 2016 into an unpredictable rollercoaster ride. The underlying forces and external pressures that have caused markets to get derailed in the last year are still in place, strongly signaling that next year won’t be less unpredictable. So if you are looking to make sound investments after the calendar turns, here are 5 tips for rock solid wealth protection in 2017.
1) Diversify Your Investments
Diversification might just be the oldest rule of investing. Don’t keep all of your financial eggs in one basket, no matter how rewarding that basket may appear at first glance. Instead, try to diversify your investments to minimize your overall risk.
Like in 2016, in 2017 your best bet to weather the storm will most likely be to diversify your investments internationally and also across different asset classes that aren’t correlated. While this might reduce short-term returns, we believe that this is best way to protect your wealth in the volatile times ahead. As a 2014 study shows, in higher-risk levels, international diversification provides significantly more stable returns, than domestic diversification. If one or more of your stocks tanks or the environment suddenly shifts, your other investments will provide a natural wealth loss barrier.
2) Prepare for Market Volatility
If 2016 has taught us anything, it’s the fact that markets can change at a moment’s notice and that the next prediction-defying surprise could be lurking around the corner. When British citizens unexpectedly voted to leave the European Union earlier this year, for example, stock markets around the world tumbled. On the other hand, Donald Trump’s surprise victory in the U.S. presidential elections this November has resulted in an unexpected jump in U.S. stock prices.
These unexpected highs and lows in stocks signify a degree of volatility the likes of which we haven’t seen in a while. And with a number of referenda and elections coming up in Europe, along with the continued speculation around the future of interest rates, 2017 won’t be any less exciting.
To protect your wealth from the volatility we expect in the coming year, it is paramount to invest in opportunities that are not closely correlated to traditional markets. Instead, consider more stable and resilient options, such as hedge funds.
3) Don’t Ignore Precious Metals
Precious metals, especially gold, have consistently served as a store of value and a wealth preservation vehicle for centuries. This investment option is particularly relevant now, as precious metals, held in physical form, can offer an insurance against the risks of the current financial climate and of the economic and monetary landscape. In these uncertain times, with a significant number of political and economic events that could trigger an avalanche in the markets at any time, it is important to be prepared. Placing a part of your assets in physical gold, held securely outside your own jurisdiction as well as the banking system, could provide a reliable shield against the risks that lie ahead in 2017.
As hard assets, precious metals like gold have long served as hedges against declining currency values and increasing inflation. Unlike industrial metals, they are not dependent on economic performance, and have historically proven their ability to protect wealth, even as stock markets crumble.
Moreover, these investments can also act as diversification opportunities and thus play an important role in strategy #1, as outlined above. Since precious metals have a low correlation to stock markets or real estate, they enable you to protect your wealth even as markets become more volatile and returns from other investments decline.
4) Stay Conservative
It’s the mark of an inexperienced investor: having some money aside, and rushing into an investment promising to multiply it aggressively. However, in reality, given the variables mentioned above, playing fast and loose with your wealth in an unpredictable market is akin to playing Russian Roulette. For rock solid wealth protection, it’s certainly not advisable.
On the other hand, having the patience and the perseverance to stick to a conservative path, offers a clear advantage, particularly in the current economic environment. That’s the most valuable lesson that can be learned from the strategies adopted by ultra high net worth individuals: the world’s richest people are choosing conservative investment approaches, instead of endangering their capital with high-risk bets. Multiplying your wealth is, of course, desirable, but it should be of secondary importance. Your first priority should be to ensure that your assets are protected through a conservative investment strategy that is focused on long-term growth rather than short-term gains.
5) Maximize Your Tax Benefits
Taxes in both the United States and around the globe continue to consistently increase. Any solid wealth protection strategy should account for that fact, ensuring that your assets are focused around vehicles where returns can compound without being aggressively taxed.
Without diligent planning, a large portion of your wealth can be taxed away, depriving you of capital which could have otherwise been invested or simply saved. By focusing on the tax efficient investments, assets and vehicles, the savings can pile up over the long term and make a significant difference. It is therefore prudent to take your time when planning your next steps. Think beyond income taxes, consider capital gains taxes and other variables; small technical details can often make a big difference over time.
Protecting Your Wealth in 2017 and Beyond
Given the ongoing stock market rollercoaster of 2016, a rock solid wealth protection strategy is key to keep your assets intact and protect your wealth in 2017 and beyond. It might be tempting to jump on the bandwagon of hot stocks and short-lived uptrends, but while the returns can be considerable, the potential losses loom just as large.
Instead, consider adopting a more conservative strategy. Diversify your investments, especially internationally, while being prepared for a volatile market that is not expected to settle down anytime soon. Consider including precious metals in your diversification strategy, and make sure that each of your investments is made with tax-efficiency in mind.
By taking these tips into consideration, you can ensure that even if 2017 is as unpredictable as its predecessor, your fortune and assets will not be negatively impacted. The result might be a less “exciting” strategy, but it will be one that reliably ensures and protects your wealth both in the short and long-term.
This article originally appeared on Mountain Vision.